United Manganese of Kalahari (Proprietary) Limited v Commissioner for the South African Revenue Service (74158/2016) [2017] ZAGPPHC 628; 2018 (2) SA 275 (GP); 80 SATC 192 (3 October 2017)

HIGH COURT OF SOUTH AFRICA

GAUTENG PROVINCIAL DIVISION, PRETORIA

Case No: 74158/2016

REPORTABLE

OF INTEREST TO OTHER JUDGES

REVISED.

In the matter between:

UNITED MANGANESE OF KALAHARI

(PROPRIETARY) LIMITED Applicant

and

COMMISSIONER FOR THE SOUTH AFRICAN

REVENUE SERVICE Respondent

Case Summary: Revenue - Mineral and Petroleum Resources Royalty Act 28 of 2008 - Interpretation - section 6(3)(b) - correct manner of calculating 'gross sales' for the purpose of calculating the royalty payable in terms of s 3(2) - legislature intended to exclude from the calculation of gross sales all expenditure incurred in respect of transport, insurance and handling (TIH) of an unrefined mineral resource after that mineral resource was brought to the condition specified in Schedule 2 and TIH expenditure incurred to effect the disposal of the unrefined mineral resource - the provision is not limited to amounts in respect of TIH expenditure received by or accrued to a seller of that unrefined mineral resource from its customer.

JUDGMENT

MEYER J

[1] The applicant seeks declaratory relief in relation to the correct interpretation and application of s 6(3)(b) of the Mineral and Petroleum Resources Royalty Act 28 of 2008 (the Royalty Act) in order to resolve the dispute that had arisen between it and the respondent, the Commissioner for the South African Revenue Service (SARS), pertaining to the correct manner of determining its 'gross sales' for the purpose of calculating the royalty payable by it in terms of s 3(2) of the Royalty Act. UMK also seeks specific relief in relation to the monetary amounts which it is entitled to deduct for purposes of calculating its mineral royalty liability in respect of the 2010 and 2011 years of assessment.

[2] Section 2 of the Royalty Act imposes the obligation on a person to 'pay a royalty for the benefit of the National Revenue Fund in respect of the transfer of a mineral resource extracted from within the Republic'. In terms of s 3(2), the royalty '. . . in respect of the transfer of an unrefined mineral resource is determined by multiplying the gross sales of the extractor in respect of that mineral resource during the year of assessment- (a) by the percentage determined in accordance with the formula in section 4(2); or (b) by the percentage determined in accordance with the formula as the Minister may announce in the national annual budget contemplated in section 27(1) of the Public Finance Management Act, 1999 (Act 1 of 1999) with effect from a date mentioned in that announcement.' The formula in s 4(2) is presently applicable; it is '0.5 + [earnings before interest and taxes (gross sales in respect of unrefined mineral resources x 9)] x 100', and the percentage determined in terms of subsection (2) must not, in terms of s 4(3)(b) , exceed 7 per cent.

[3] Subsections 6(2)(a) and 6(3)(b), the construction of which provisions are presently in dispute, read as follows:

'(2) Gross sales in respect of an unrefined mineral resource transferred-

(a) as mentioned in paragraph (a) of the definition of 'transfer' in section 1 in the condition specified in Schedule 2 for that mineral resource is the amount received or accrued during the year of assessment in respect of the transfer of that mineral resource;

(3) (b) For purposes of subsection (2), gross sales is determined without regard to any expenditure incurred in respect of transport, insurance and handling of an unrefined mineral resource after that mineral resource was brought to the condition specified in Schedule 2 for that mineral resource or any expenditure incurred in respect of transport, insurance and handling to effect the disposal of that mineral resource.

[Sub-s. (3) substituted by s. 99 (1) of Act 17 of 2009 ]'

[4] UMK is currently the fourth largest producer of manganese in this country. It owns a mine in the John Taolo Gaetsewe District

Municipality in the Northern Cape Province. There it extracts unrefined manganese (manganese ore), which it crushes and screens

before it is stockpiled. It brings the manganese, it is common cause, to the condition specified under Schedule 2 of the Royalty Act. The manganese ore is loaded onto a truck or train for delivery to UMK's customers. It bears the obligation for the incurrence of all costs necessary to effect delivery of the manganese from the mine to its customers, if so required in terms of the relevant contract delivery terms. These costs include transport, insurance and handling (TIH) costs in delivering the unrefined manganese to its customers.

[5] UMK conducts 'mining operations' as contemplated in the definition of the phrase in s 1 of the Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA). It is an 'extractor' of an 'unrefined mineral resource' (it mines unrefined manganese) and is liable for payment of a 'royalty' in terms of s 3 the Royalty Act.

[6] The declaratory relief which UMK seeks in terms of prayers 1 and 2 of the notice of motion only concerns the correct manner of calculation of UMK's 'gross sales', as contemplated in s 6(3) of the Royalty Act in respect of the unrefined mineral resource transferred by it in the 2010 and 2011 years of assessment, and in particular whether the transport, insurance and handling costs incurred by UMK after a particular point (the condition specified) may be deducted in determining its gross sales in terms of s 6(3). At stake is an amount in excess of R1 billion.

[7] It is common cause that UMK transferred manganese as contemplated in the definition of the word 'transfer' in s 1 of the Royalty Act, during the 2010 and 2011 years of assessment. The manganese that was mined and sold by UMK was brought to the condition specified in Schedule 2, which is the point referenced as 'CV07' on the 'UMK Material Flow' diagram. The Royalty Act contains particular

provisions in respect of the calculation of earnings before interest and taxes (EBIT) as well as gross sales and, in particular, s 6(3)(b) provides that gross sales are to be determined without regard to any expenditure incurred by the extractor (such as UMK) in respect of the transport, insurance and handling of an unrefined mineral resource (the manganese) after it has been brought to the condition specified in Schedule 2 of the Royalty Act or any expenditure incurred in respect of transport, insurance and handling to effect the disposal of it.

[8] It is only in respect of its export sales of manganese in 2010 and 2011 years of assessment that UMK incurred TIH costs post the CV07 point as well as expenditure to effect the disposal of the manganese. UMK maintains that it determined its gross sales in terms of s 6(3)(b) of the Royalty Act in respect of the 2010 and 2011years of assessment with reference to expenditure actually incurred by it, and not based on any estimated figures as SARS alleged it did. According to UMK its export sales of manganese in the 2010 year of assessment amounted to R1 668 024 909, the total TIH costs incurred by it were R1 131 943 849 and its export sales of manganese in the 2011 year of assessment amounted to R2 218 387 348 and the total TIH costs incurred by it were R1 458 544 720. UMK made full payment to SARS of the royalty payable in accordance with its assessments.

[9] The export sales of manganese contracts are governed by free-on-board ('FOB') or cost insurance freight ('COR') terms. It is common cause that UMK incurred the following TIH costs to transport the manganese from the mine to the ship in the event of FOB contractual terms, or to the port of discharge in the event of CIF contractual terms, agreed between UMK and its customers: container costs for tonnages transported by road to the harbour (in respect of FOB and CIF contractual terms); railand road transport and handling costs to transport the manganese to the harbour (in respect of FOB and CIF contractual terms); and freight and insurance costs (in respect of CIF contractual terms). In respect of these contracts, it is also common cause, that UMK, as the seller of the manganese, was responsible for and incurred the expenses in respect of the TIH costs up to the port of loading (the South African port in the case of FOB contractual terms) and the port of discharge (the port nominated by the customer, as purchaser, in the case of CIF contractual terms). (In respect of its local sales the manganese is sold free-on-rail ('FOR') or free-on-truck ('FOT') and the manganese is collected from the mine by its customers' transportation contractors.)

[10] UMK contends that it was entitled, on a proper interpretation of the provisions of s 6(3)(b) of the Royalty Act, to calculate its gross sales by deducting from the amounts received by or accrued to it during the 2010 and 2011 years of assessment in respect of its transfer of manganese, the TIH expenditure, or any expenditure incurred by it in respect of TIH, after the manganese was brought to the condition specified in Schedule 2, or to effect the disposal of the manganese. The deductions could be made, so UMK contends , irrespective of whether such expenditure was specifically considered in the computations or determinations of the amounts received or accrued for the manganese. SARS, on the other hand, contends that the real question is whether UMK took TIH expenditure into account for purposes of the calculation of gross sales. If the TIH costs were not taken into account in the calculation of gross sales, SARS argues, UMK is precluded from having regard to such costs (i.e. If UMK's gross revenue is simply a function of the market price ruling from time to time and not a function of the costs incurred in delivering the manganese to its customers, such costs cannot be deducted from gross sales as contemplated in s 6(3)(b) of the Royalty Act). UMK, on the other hand, argues that this is not required by s 6(3)(b) and it avers that it in any event took such expenditure into account in calculating its gross sales in respect of the 2010 and 2011 years of assessment.

[11] UMK submitted its mineral royalty returns (MPR3's) to SARS for the 2010 year of assessment on 29 December 2011 and for the 2011 year of assessment on 6 September 2012. During 2012, SARS commenced an audit of UMK in terms of various provisions of the Income Tax Act 58 of 1962 (the IT Act) and the Royalty Act. A letter of notification of audit, dated 22 August 2012, was sent to UMK. On 1 November 2013, SARS notified UMK that the audit was suspended due to technical and interpretational issues pertaining to the Royalty Act. In Apr il 2014, SARS conducted a 'field audit' at the mine to understand and document the mining processes for purposes of applying the royalty legislation. On 17April 2014, SARS issued a letter of audit findings in which UMK was informed that SARS had completed its audit of the mineral and petroleum resources royalty for the 2011 year of assessment. It is inter alia stated in the letter that SARS had found that UMK had deducted transport and distribution costs (including insurance, handling etc) from its sales in determining gross sales for the 2011 year of assessment and that s 6(3) of the Royalty Act precludes such deduction. UMK responded to the letter of audit findings on 27 June 2014. Various progress reports were submitted thereafter, and eventually , on 8 December 20 14, a meeting was held between representatives of SARS and of UMK, at which meeting UMK requested SARS' view of the mining process for manganese and the application of the Royalty Act to such processes. A view was provided by SARS in a letter dated 24 March 20 15.

[12] On 7 April 2015, a further meeting was held between representatives of SARS and of UFK to discuss the way forward on the audit. A decision was taken to withdraw the original letter of audit findings of 17 April 2014 so that the 2010 year of assessment could also be considered in the findings. On 10 April 2015, SARS formally withdrew its original letter of audit findings dated 17 April 2014. It thereafter began to consider what additional information was required from UMK in respect of the 2010 year of assessment. On 20 April 2015, SARS requested additional further material from UMK, which was responded to by UMK on 30 July 2015. On 27 January 2016, another meeting was held between representatives of SARS and of UMK, at which meeting UMK provided SARS with a detailed explanation of its mining process. At that meeting, both SARS and UMK agreed that the manganese achieved its 'condition specified' (the point at which the mineral meets the requirements under Schedule 2 of the Royalty Act) at point 'CVO?' on the 'UMK Material Flow' diagram.

[13] On 22 April 2016, SARS issued a letter of audit findings in relation to the royalty audit of the 2010 and 2011years of assessment. In that letter it is inter alia stated that SARS found that UMK deducted transport and distribution costs from gross sales for the 2010 and 2011 years of assessment and in so doing it estimated these costs instead of using actual costs incurred. It is further stated that all assets used or expenditure incurred after point CV07 would be disregarded for the determination of royalty tax for the 2010 and 2011 years of assessment. On 30 June 2016, UMK's attorneys provided SARS with a substantive written response to the letter of audit findings and requested a meeting with SARS to discuss the contents of the response. This meeting took place on 25 August 2016. At the meeting SARS indicated to UMK that it would re-engage with its legal division to confirm the position in respect of the costs and assured UMK that its view would be considered before a letter of finalisation was issued. The following day, on 26 August 2016, SARS informed UMK in an email that it did not require additional information from it.

[14] On 2 September 2016, UMK's attorneys of record, Edward Nathan Sonnenbergs Inc, furnished a written notice in terms of s 11(4) of the Tax Administration Act 28 of 2011 (the TA Act) to SARS, notifying it of UMK's intention to institute court proceedings for declaratory relief. It is stated in the notice that the dispute between UMK and SARS relates to the 'interpretation and application of the provisions of s 6(3)(b) of the Act' as set out in the audit findings letter and the response thereto. SARS, by email, invited UMK's attorneys of record to attend a meeting to discuss the reasons why UMK elected to institute proceedings in the High Court. UMK's attorneys of record accepted the invitation and the meeting was scheduled to take place on 20 September 2016. But, before this meeting took place, SARS, on 19 September 2016, inadvertently sent a letter to UMK requesting additional relevant material. UMK immediately cancelled the scheduled meeting with SARS. The request for additional relevant material was formally withdrawn by SARS in an email on 20 September 2016, because, according to SARS, its intention had always been to discuss the contents of the letter with UMK before it was issued. This was explained to UMK, who agreed to meet with SARS on 21 September 2016. At that meeting, SARS raised the additional information that was required and explained the purpose of the request. UMK's attorneys of record confirmed that UMK would be seeking declaratory relief to obtain certainty in relation to the correct interpretation of s 6(3) of the Royalty Act. On 22 September 2016, SARS issued a request for the additional information required as had been discussed at the meeting on 21 September 2016. SARS received the present application on 22 September 2016. By letter dated 18 October 2016, UMK responded to SARS' request for additional information. SARS issued a final assessment on 15 December 2016.

[15] SARS opposes the relief sought by UMK on the following grounds: First, it argues that this court lacks jurisdiction to hear this matter. It ought, argues SARS, properly to have been brought in the tax court after SARS has had an opportunity to render a decision in respect of the assessments at issue. In any event, it further argues, UMK has failed to exhaust its internal remedies provided for in the TA Act. Second, it argues that the granting of declaratory relief is discretionary and this court ought not to exercise its discretion to grant such relief in the circumstances of this case. Third, it argues, that the language of s 6(3)(b) of the Royalty Act is clear and unambiguous and that the interpretation contended for by UMK ought not to be adopted by this court.

[16] Chapter 9 of the TA Act contains extensive dispute resolution procedures. It provides inter a/ia for the lodging of objections against assessments and certain decisions (s 104), the allowance or disallowance of the objection by SARS (s 106), an appeal against the assessment or decision to the tax board or tax court (s 107), the referral of the tax board's decision to the tax court for hearing (s 115), an appeal against the decision of the tax court to the full bench of the high court or, in some instances , to the Supreme Court of Appeal without an intermediate appeal to the high court (s 133), and for the settlement of disputes in appropriate circumstances (ss 142-149).

[17] In Metcash Trading Ltd v Commissioner for South African Revenue Service and Another 2000 (1) SA 1109 (CC), para 32-33, Kriegler J stated the following within the context of a value-added tax dispute and prior to the commencement of the TA Act on 1 October 2012 :

'. . . The Commissioner is not a judicial officer - and assessments and concomitant decisions by the Commissioner are administrative, not judicial, actions; from which it follows that challenges to such actions before the Special Court or board are not appeals in the forensic sense of the word. They are proceedings in terms of a statutory mechanism specially created for the reconsideration of this particular category of administrative decisions - and appropriate corrective action - by a specialist tribunal.

. . . Were it not for this special 'appeal' procedure, the avenues for substantive redress available to vendors aggrieved by the rejection of their objections to assessments and decisions by the Commissioner would probably have been common lawjudicial review as now buttressed by the right to just administrative action under s 33 of the Constitution, and as fleshed out in the Promotion of Administrative Justice Act. Here, however, the Act provides its own special procedure for review of the Commissioner's challenged decisions by specialist tribunals.'

[18] Tax cases are generally reserved for the exclusive jurisdiction of the tax court in the first instance. But, it is settled law that a decision of the Commissioner is subject to judicial intervention in certain circumstances. One such circumstance is that the high court has jurisdiction to hear and determine tax cases turning on legal issues. In Metcash, Kriegler J said the following:

'[44] Indeed, it has for many years been settled law that the Supreme Court has jurisdiction to hear and determine tax cases turning on legal issues. Thus in Friedman and Others NNO v Commissioner for Inland Revenue: In Re Phillip Framewill Trust v Commissioner for Inland Revenue [1991 (2) SA 340 (W)] McCreath J was asked to resolve the legal question whether a testamentary trust was a person within the meaning of the Income Tax Act. Having referred to half a dozen reported cases, four of them in the Appellate Division, where the existence of such jurisdiction was accepted without discussion, and one prentice hall report, where the point was specifically considered, McCreath J concluded as follows as to his competence to determine the case:

"I am in agreement with the finding of the Court in that case that where the dispute involved no question of fact and is simply one of law the Commissioner and the Special Court are not the only competent authorities to decide the issue - at any rate when a declaratory order such as that in the present case is being sought."

The judgment was confirmed on appeal. Although those cases concerned income tax and the Income Tax Act, not specifically VAT and the Act, there is no reason to doubt the applicability of the jurisdictional principle in the present - analogous - context. Indeed, it is evident from a comparison of the section that the drafters of the Act borrowed freely from the Income Tax Act, the terminology of which is frequently echoed.'

[45] There is more recent and directly applicable authority for the proposition that, pending the resolution of disputes under these special appeal procedures provided by the Act, a Superior Court has jurisdiction to consider - and where appropriate - grant relief - in VAT cases. It is the judgment in the case of Contract Support Services (Pty) Ltd and Others v Commissioner, South African Revenue Services, and Others [1999 (3) SA 1133 (W)]. The applicants in that case, vendors against whom the Commissioner had made assessments and had then used the garnishment mechanism of s 47 of the Act to enforce payment, applied to the Witwatersrand High Court for urgent interlocutory relief against the Commissioner pending the resolution of their disputes in the Special Court. Part of what they sought was an order reviewing

and setting aside the assessments and freezing the situation pending the determination of that issue. There was no suggestion that the Court's jurisdiction to consider relief had been ousted by the Act. On the contrary, the argument on both sides and the judgment

implicitly accepted that the Court was empowered to issue an interim declaratory order pending the resolution of the contemplated

application to review and set aside the relevant assessments. Similarly in Shell's Annandale Farm (Ply) Ltd v Commissioner, South African Revenue Service [2000 (3) SA 564 (C)], an application for a declaratory order by a vendor who intended lodging objection under the Act to an assessment, a preliminary issue raised on behalf of the Commissioner was whether the High Court had the power to grant the order. The learned Judge, Davis J, in dismissing the Commissioner's preliminary objection, referred to some of the cases mentioned above as well as to two further tax cases considered in the Appellate Division and one in the Cape Provincial Division where it was accepted that declaratory relief was competent in cases where a taxpayer wished to challenge an assessment.'

(Footnotes omitted.)

[19] It is also noteworthy that a tax court established under the TA Act, consists of a judge of the high court and two assessors, one of whom an accountant and the other a representative of the commercial community (s 118(1)). But, '[i]f an appeal to the tax court involves a matter of law only or is an interlocutory application or application in a procedural matter under the "rules", the president of the court sitting alone must decide the appeal' (s 118(3)).

[20] This court, therefore, has the power to hear and determine the declaratory relief claimed in prayers 1 and 2 of UMK's notice of motion. The order it seeks in prayer 1 of the notice of motion is a declarator in relation to the correct construction of s 6(3) of the Royalty Act and the one it seeks in prayer 2 is the application of that construction to UMK, which is for this court to declare that UMK is entitled to calculate its gross sales (in terms of ss 6(2) and s 6(3)(b) of the Royalty Act) in respect of the manganese transferred by it in the 2010 and 2011 years of assessment by deducting: (a) any expenditure incurred by it in respect of transport, insurance and handling of the manganese after the manganese was brought to the condition specified in Schedule 2 of the Royalty Act; as well as (b) any expenditure incurred in respect of transport, insurance and handling to effect the disposal of the manganese, irrespective whether any such expenditure was specifically and/or consciously considered in the determination of UMK's gross sales and irrespective whether such transport, insurance and handling costs are of a capital nature. UMK concedes that the declarator sought in prayer 1 might be superfluous if the declarator claimed in prayer 2 were to be granted.

[21] SARS further argues that this is not a case in which this court ought to exercise its discretion to grant the declaratory relief sought in the notice of motion. I disagree with the submission as far as it concerns the declaratory relief sought in prayers 1 and 2 of the notice of motion. It is trite that the granting or refusal of declaratory relief is discretionary. It is a discretion that must be exercised with due regard to the circumstances of a particular case. (See for example Durban City Council v Association of Building Societies 1942 AD 27 at 32; Cordiant Trading CC v Daimler Chrysler Financial Services (Pty) Ltd 2005 (6) SA 205 (SCA), para 18.) UMK already submitted its mineral royalty returns (MPR3's) to SARS, some years ago; for the 2010 year of assessment on 29 December 2011 and for the 2011 year of assessment on 6 September 2012. UMK and SARS are ad idem that the Royalty Act was new legislation in 2010 and 2011. They agree that it is a complex statute with a number of notional concepts, for example, EBIT, which resembles income tax calculations with subtle differences. It is also common cause that there are different views on the interpretations and application of the Royalty Act amongst taxpayers and SARS. There are no judicial pronouncements on the interpretation and application of the Royalty Act. I am, in all the circumstances, of the view that this court should exercise its judicial discretion in favour of the adjudication of the relief sought in prayers 1 and 2 of the notice of motion.

[22] In prayer 3 of the notice of motion UMK claims an order that it is entitled, in determining gross sales in respect of the manganese

transferred by it during the 2010 and 2011 years of assessment, to deduct from the amounts received by or accrued to it for those years of assessment in respect of the transfer of manganese, the amounts reflected on annexure 'X1' attached to the notice of motion. This dispute is not simply one of law that involves no question of fact nor is the relief sought interlocutory in nature. It is relief that is directed specifically at UMK's royalty liability for the 2010 and 2011 years of assessment.

[23] In Van Zyl NO v The Master and Another 1991 (1) SA 874 (E), at 877-878, in the context of the dispute resolution procedures provided in the IT Act, Eksteen J held as follows:

'The only way in which these assessments could be questioned was in the manner provided for in the Income Tax Act, viz by objecting to the second respondent in terms of s 81 of the Act and then appealing to the Special Income Tax Court in terms of s 83. The Act specifically prescribes that procedure, and entrusts the determination of the amount owing entirely to the second respondent [the Commissioner], and, on appeal from his decision, to the Special Income Tax Court (Whitfield v Phillips and Another 1957 (3) SA 318 (A) at 345). Just as no other court of law can usurp the function of the second respondent, and, on appeal from his decision, that of the Special Court, so too the Master has no such authority.

. . . Of course if he was of the view that the document tendered in support of the claim was not an assessment issued by the second respondent at all, or that there was some patent error in the calculation of the claim proved, or something of that nature, he would be entitled to request the Master, and the Master would be either to expunge the claim altogether or to reduce it so as to reflect the true amount ssessed by the second respondent. But apart from such patent defects, the only way in which the validity of the amount claimed can be brought into question is in the manner provided for in the Income Tax Act.'

[24] In Oceanic Trust Co Ltd v Commissioner for South African Revenue Service 74 SATC 127, the Western Cape High Court was called upon to grant declaratory relief inter alia that a trust (referred to as 'SISM') was not a 'resident' of South Africa as defined in s 1 of the IT Act. The applicant contended that the issues raised in that application could be decided on those facts that were common cause or, where there were disputes, on the Commissioner's version and the court was, therefore, not required to decide a dispute of fact. Louw J said the following:

'[57] First, in my view, for this court decide that SISM was not a resident of the Republic, will require this court to enquire into the facts and to make factual findings inter alia on the question where in South Africa or in Mauritius, SISM's key management and commercial decisions that are necessary for the conduct of SISM's business were in substance made during the years in question. All the material facts relating to the management of SISM have not, in my view, been "fully found", and are not sufficiently clear'' in order to simply pose the question whether the facts are such as to bring this case within the definition of "resident" properly construed. In my view the question whether SISM was a resident of South Africa is not at this stage, simply a question of law. This court is not entitled even if this court were able to do so on the facts in this case, to enquire into and make the required findings of fact. The legislator has entrusted the making of such decisions to the Tax Court.'

(Also see Rossi and others v The Commissioner for the South African Revenue Service 74 SATC 387, paras 15-17.)

[25] In order to grant the relief sought in this prayer 3, this court will be required to enquire into the facts and to make factual findings inter alia on the correctness of the amounts listed in annexure 'X1' (the TIH costs and expenditure incurred post CV07 stage) and that they were appropriately deducted from the amounts received by or accrued to UMK for the 2010 and 2011 years of assessment. It is a technical assessment which UMK wishes this court to undertake in the absence of proper evidence - and in circumstances where SARS itself remains seized with the assessment. UMK did not attach all the invoices to support its calculation of the costs incurred. It merely offers to make it available to SARS, at its request, and to the court at the hearing of this application. That is simply not sufficient. The proof of this claim is dependent on evidence which is not before this court.

[26] The determination of this claim calls for judicial deference and not for this court to usurp the function of SARS. (See Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others [2004] ZACC 15; 2004 (4) SA 490 (CC), paras 46-48.) The task of calculating and verifying the contents of annexure 'X1' is properly the function of SARS and of the tax court, consisting of a judge of the high court, an accountant and a representative of the commercial community, if SARS refused to accept UMK's calculations and the assessments are challenged. I would for these reasons also have refused to grant this order even if it was found that this court had the power to hear and determine it.

[27] My conclusions thus far make it unnecessary for me to consider SARS' argument based on the provisions of s 7(2) the Promotion of Administrative Justice Act 3 of 2000 (PAJA) that UMK has failed to exhaust the internal remedies available to it under the TA Act. This matter is not a review in terms of PAJA and I am duty bound to follow the decisions that have enunciated and affirmed the jurisdictional principle that the high court has the power to decide tax matters where the relief sought is for declaratory orders involving questions of law only or is interlocutory in nature. The Constitutional Court, in Camps Bay Ratepayers' and Residents' Association & another v Harrison & another 2011 (4) SA 42 (CC), paras 28-30, said the following about observance by courts of the maxim stare decisis or the doctrine of precedent: 'Considerations underlying the doctrine were formulated extensively by Hahlo & Kahn [Hahlo & Kahn The South African Legal System and its Background (Juta), Cape Town 1968 at 214- 15]. What it boils down to, according to the authors, is: '(C)ertainty, predictability, reliability, equality, uniformity, convenience: these are the principal advantages to be gained by a legal system from the principle of stare decisis.' Observance of the doctrine has been insisted upon, both by this court and by the Supreme Court of Appeal. And I believe rightly so. The doctrine of precedent not only binds lower courts, but also binds courts of final jurisdiction to their own decisions. These courts can depart from a previous decision of their own only when satisfied that that decision is clearly wrong. Stare decisis is therefore not simply a matter of respect for courts of higher authority. It is a manifestation of the rule of law itself, which in turn is a founding value of our Constitution. To deviate from this rule is to invite legal chaos.'

(Footnotes are omitted.)

[28] I now turn to the interpretation of s 6(3)(b) of the Royalty Act. That statutory provision must be interpreted in accordance with the established principles of interpretation. (See Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18; Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) para 12.) Interpretation is now 'essentially a unitary exercise'. 'The "inevitable point of departure is the language of the provision itself', read in context and having regard to the purpose of the provision and the background to the preparation and production of the document.'

[29] SARS argues that the question is not whether in terms of its contracts with its customers TIH costs were payable by UMK but

whether such costs were invoiced to the customers as part of the purchase price. UMK may only deduct those TIH costs, so SARS argues,

that were included in UMK's prices to its customers, and specified. Where the price received by UMK, SARS further argues, is not fixed by having regard to TIH costs and is instead determined by some other reference point, such as the London Metal Exchange or the CRU Japanese Quarterly Benchmarking, disregarding TIH costs has no effect upon the price and hence upon gross sales. SARS' interpretation of s 6(3)(b) is, in my view, patently flawed. It flies in the face of the ordinary grammatical and contextual meaning of the words in s 6(2) and in s 6(3)(b) and cannot be sustained.

[30] The term 'gross sales' is defined in s 1 of the Royalty Act to mean 'gross sales mentioned in s 6'. 'Gross sales' in respect of an unrefined mineral resource transferred is, in terms of s 6(2), 'the amount received or accrued during the year of assessment in respect of the transfer of that mineral resource'. In the present case the 'amount received or accrued' is constituted by the purchase price earned or received by UMK during the relevant years of assessment in respect of the sale of its manganese ore.

[31] Section 6(3)(b) then provides that for purposes of subsection (2), gross sales is determined 'without regard to any expenditure incurred in respect of transport, insurance and handling of an unrefined mineral resource' post the condition specified 'or any expenditure incurred in respect of transport, insurance and handling to effect the disposal of that mineral resource.'

[32] Prior to its amendment by s 99(1) of the Taxation Law Amendment Act 17 of 2009, s 6(3)(b) provided as follows:

'For purposes of subsection (2), gross sales is determined without regard to any amount received or accrued for the transport, insurance and handling of an unrefined mineral resource after that mineral resource was brought to the condition specified in Schedule 2 for that mineral resource or any amount received or accrued to effect the disposal of that mineral resource.'

[33] The phrase 'received or accrued' used in s 6(2) and in s 6(3)(b) prior to its amendment, and the phrases 'without regard to' and 'expenditure incurred' used in the amended s 6(3)(b) are not defined in the Royalty Act. In Attieh v Commissioner SARS (as yet unreported (case no A5024/2015 ) (11 August 2016)) the Full Court of the Gauteng Local Division said the following about the meanings of the words 'received' and 'accrued':

'[15] "Received" and "accrue" are familiar words, often encountered in taxation legislation, particularly in the context of the definition of "gross income" in s 1 of the TA Act. The definition includes "the total amount, in cash or otherwise, received by or accrued to or in favour or a taxpayer. In Geldenhuys v Commissioner for Inland Revenue 1947 (3) SA 256 (C), at 269, Herbstein AJ said the following:

"Technically it may be said that if the purchase price is paid to him it is 'received' by him. But, in my opinion, the expression 'received by him' means that the money must be received by him in such circumstances that he becomes entitled to it.”

[16] In Commissioner for Inland Revenue v Genn & Co (pty) Ltd 1955 (3) SA 293 (A), at 301B­ G, Schreiner JA, said the following about the meanings of the words "received" and "accrue": "I have grave doubts whether this argument does not fail at the outset on the ground that borrowed money is not received nor does it accrue within the meaning either of the definition of 'gross income' or of sec. 12 (f). It is difficult to see how money obtained on loan can, even for the purposes of the wide definition of 'gross income', be part of the income of the borrower, any more than the value of the tractor which the farmer borrows is to be regarded as being income received otherwise than in cash. Though a borrower for use differs from a borrowing for consumption in that the borrower in the former case does not become the owner of the thing borrowed and must return it in specie, while in the latter case he does become the owner and is only obliged to return what is similar, for present purposes there would seem to be no difference between the two cases. Nor would it seem to make any difference whether or not hire is paid for the use

of the tractor or interest for the use of the money. Neither in the case of the borrowed or hired tractor nor in the case of the borrowed or 'hired' money does it seem to accord with ordinary usage to treat what is borrowed or hired as a receipt within the meaning of sec. 12 (f) . It certainly is not every obtaining of physical control over money or money's worth that constitute a receipt for the purposes of these provisions. If, for instance, money is obtained and banked by someone as agent or trustee for another, the former has not received it as his income. At the same moment that the borrower is given possession he falls under an obligation to repay. What is borrowed does not become his, except in the sense, irrelevant for present purposes, that if what is borrowed is consumable there is in law a change of ownership in the actual thing borrowed."

[17] The meaning of the word "accrue" was explained by Plewman JA in Commissioner, South African Revenue Service v Executor, Frith's Estate 2001 (2) SA 261 (SCA), thus:

'[5] "Accrue" is a familiar word often encountered in our law - particularly, in the law of succession and in taxation legislation where it is usually encountered in a disjunctive sense in phrases such as "receipts or accruals". The Shorter Oxford English Dictionary gives (in the sense appropriate to the context in which we find the word) the meaning "to come as an accession or advantage".

[6] In our jurisprudence the word is, in general, used in contexts which require that it be given the meaning "entitled to" in contrast to a meaning such as "actually receive or received". This too seems to be the sense in which the word is, for example, used in America. Black 's Law dictionary (1979 ed) gives numerous examples illustrating this. Some of the examples are: "alimony which is due but not yet paid"; "expenses incurred but not yet paid"; "interest which has been earned but is not yet paid or payable". The primary meaning of the word accrue would thus seem to me to involve a nuance which contrasts it with a meaning such as 'has been

received' or 'will be actually received'.'

[18] The context in which the words "received by" and "accrued to" are used in para 35(1), in my view, similarly require that the word "received" be given the meaning "has been or actually received" in such circumstances that the recipient becomes entitled to it and the word "accrued" the meaning "entitled to" in contrast to the meaning "actually received". The "proceeds from the disposal of an asset by a person" are, in terms of para 35(1), equal to the amount received by, or accrued to "that person in respect of that disposal". The receipt or accrual relates to the disposal.'

[34] In Geldenhuys v Commissioner for Inland Revenue 1947 (3) SA 256 (C), at 270, the meaning 'received by the taxpayer for his own benefit' was attributed to the phrase 'received by' and in Lategan v CIR 1926 CPD 203 the meaning 'unconditionally entitled to an amount' to. the phrase 'accrued to'.

[35] The Oxford Dictionary (in the sense appropriate to the context in which we find the words) gives the word 'without' the meaning 'exclusive of, not including, except; [w]ith absence of, not with the presence or addition of ...', the word 'regard' the meaning 'reference to a person or thing' and the phrase 'without regard to'the meaning 'without heed or thought of or 'without giving consideration or weight to a thing; without reference to'. In Black's Law Dictionary the word 'expenditure' is defined to mean '[t]he act or process of paying out; disbursement or sum paid out'. And in Ackermans Ltd v Commissioner, South African Revenue Service; Pep Stores (SA) Ltd v Commissioner, South African Revenue Service 2011 (1) SA 1 (SCA), para 8, it was held that "'expenditure incurred" means the undertaking of an obligation to pay or (which amounts to the same thing) the actual incurring of a liability'.

[36] Although the cases concerned income tax and income tax legislation the analogous context in which the words 'received' and 'accrued' are used in s 6(2) of the Royalty Act requires that the word 'received' be given the established meaning in the tax context of 'has been or actually received' in such circumstances that the recipient becomes entitled to it and the word 'accrued' the meaning 'entitled to' or 'unconditionally entitled to' in contrast to the meaning 'actually received'. Also, the context in which the words 'expenditure incurred' requires that it be given the meaning of 'the undertak ing to pay or . . . the actual incurring of a liability'. There is no reason why these concepts should not be interpreted to have a similar meaning in the context of the wording of the Royalty Act (also a tax context). The legislature used words given an established meaning in a tax setting in a series of judicial pronouncements, which the legislature is presumed to know.

[37] The words used in s 6(3)(b) are clear and unambiguous and make it plain that the legislature intended to exclude TIH 'expenditure

incurred' post the condition specified and TIH 'expenditure incurred' to effect the disposal of the mineral resource whether or not the extractor 'actually received' or is 'entitled to' recover the TIH costs from its customer. Section 6(3)(b) can only be understood to provide for the exclusion of all expenditure relating to TIH costs incurred by the seller of an unrefined mineral resource and the provision is not limited to amounts received or accrued by a seller in the recovery of distribution costs, as was the case prior to its amendment. Section 6(3)(b) contains no provision in terms of which UMK (an extractor) would have to show that expenditure incurred in respect of TIH or expenditure incurred in respect of TIH to effect the disposal of the mineral resource occurred in circumstances where such expenditure was taken into account in determining UMK's gross price.

[38] The deletion by the legislature of the words any 'amount received or accrued for' the TIH of an unrefined mineral post the condition specified and of the words any 'amount received or accrued' to effect the disposal of that mineral resource when s 6(3)(b) was amended and the substitution of those words with the words 'any expenditure incurred in respect of the TIH of an unrefined mineral resource and 'any expenditure incurred in respect of transport, insurance and handling' to effect the disposal of that mineral resource, also make it plain that the legislature intended to exclude TIH expenditure post the condition speci ed and TIH expenditure incurred to effect the disposal of the mineral resource, whether or not the extractor 'actually received' or is 'entitled to' recover the TIH costs from its customer, or, in other words, whether or not the TIH expenditure were included by the extractor in the calculation of its sales price(s).

[39] The limitation contended for by SARS is not expressly provided for in s 6(3)(b) and will thus have to be read into it by implication.

Corbett JA, in Rennie NO v Gordon & another 1988 (1) SA 1 (A), at 22E-F, said that '[w]ords cannot be read into a statute by implication unless the implication is a necessary one in the sense that without it effect cannot be given to the statute as it stands'. (Reiterated by the Constitutional Court in Bernstein v Bester & others NNO [1996] ZACC 2; 1996 (2) SA 751 (CC) para 105; National Director of Public Prosecutions v Mohamed 2003 (4) SA 1 (CC) para 48; and Geuking v President of the Republic of South Africa 2003 (3) SA 34 (CC) para 20.) I am of the view that effect can be given to the Royalty Act and in particular s 6(3)(b) thereof 'as it stands' without the need to limit the TIH expenditure that falls to be disregarded in terms of that subsection to expenditure that was (first) included by the extractor in the calculation of its sales price(s).

[40] Nothing in the context detracts from the clear and unambiguous meaning of s 6(3)(b). The Royalty Act forms part of the taxation laws of this country. Its purpose is to impose a royalty on the transfer of a mineral resource extracted from within the Republic. In its 2008 Explanatory Memorandum, SARS stated the following with regard to the purpose of excluding TIH costs from the determination of gross sales: 'The determination of both gross sales and EBIT excludes transportation, insurance and handling charges. This exclusion is necessary so as not to penalize minerals that are located far from markets, or an export port. Transport, insurance and handling charges for the transportation of minerals, in the conditions as per Schedules 1 and 2, between buyer and seller, are excluded.'

[41] In the result the following order is made:

1. The applicant is entitled to calculate its gross sales (in terms of subsections 6(2) and 6(3) of the Mineral and Petroleum Resources Royalty Act 28 of 2008, as amended (the Royalty Act)) in respect of manganese transferred by it in the 201O and 2011 years of assessment by deducting:

1.1 any expenditure incurred by the applicant in respect of transport, insurance and handling of the manganese after the manganese had been brought to the condition specified in Schedule 2 of the Royalty Act; as well as

1.2 any expenditure incurred in respect of transport, insurance and handling to effect the disposal of the manganese, irrespective whether any such expenditure was specifically and/or consciously considered in the determination of the applicant's gross sales and irrespective whether such transport, insurance and handling costs are of a capital nature.

2. The respondent is to pay the costs of the application, including those of two counsel.

______________________

P.A. MEYER

JUDGE OF THE HIGH COURT

Date of hearing: 9 May 2017

Date of judgment: 3 October 2017

Counsel for applicant: J .J. Gauntlett SC QC (assisted by P.A. Swanepoel)

Instructed by: Edward Nathan Sonnenbergs Inc., Sandton

Clo Serfontein, Viljoen & Swart, Pretoria

Counsel for respondent: C. Loxton SC (assisted by N. Rajab-Budlender

Instructed by: Klagsbrun Edelstein Bosman De Vries Inc., Pretoria